Facing deadline, Puerto Rico's government pushes to overhaul indebted state power company

SAN JUAN, Puerto Rico – Puerto Rico is preparing to overhaul its heavily indebted public power company as the U.S. territory's government faces a July deadline to approve a new budget and make a roughly $400 million payment to the utility's investors amid growing concerns that public agencies could go bankrupt.

Officials are negotiating with creditors after submitting a long-awaited restructuring plan that calls for investing at least $2.3 billion in the island's Electric Energy Authority and revising rate structures, Lisa Donahue, the authority's chief restructuring officer, said Tuesday.

Regardless of what type of final plan may be approved, Puerto Rico residents will see some sort of electric rate increase, she told The Associated Press.

"It's inevitable," she said.

The plan calls for everyone, including creditors and the government, to help bear the financial burden of a company that has more than $9 billion in debts, with officials noting that the current rate structure does not cover costs or debt service requirements.

A summary of the plan released late Monday also proposes to convert power plants so they can burn both natural gas and fuel oil and to create private-public partnerships for building new plants and operating the system.

Critics warned that a rate increase would further harm the struggling economy in Puerto Rico, which is in the eighth year of a recession and where power bills are already on average twice those of the U.S. mainland.

"An increase will not benefit anyone," said Puerto Rico's delegate to Congress, Pedro Pierluisi. "It's going to affect our battered economy and even the authority's own revenues."

Officials have not publicly released the full plan, citing the continuing negotiations with creditors. They expect it will be approved by month's end, although Donahue declined to say how the $400 million payment due in July might be affected if a plan was not approved and whether a debt restructuring would then be inevitable.

Concerns remain about the measures proposed, said Stephen Spencer, a managing director with Los Angeles-based investment bank Houlihan Lokey, an adviser to bondholders.

"While elements of the plan were positive from our perspective, there were also aspects that were unworkable and will require further negotiation," he said in a statement.

The bondholder group offered in April to invest $2 billion to improve the power company's finances and infrastructure, and Donahue said officials are still seeking the best way to attract more capital.

Economist Gustavo Velez said in a phone interview that the public power company should quit producing electricity and become just a distributor of power generated by others.

"It's a monopoly," he said. "They have to bring in private companies that can produce energy ... The plants are obsolete. They are inefficient and have serious infrastructure problems, and the authority does not have the money to update them."

In all, Puerto Rico's government is struggling with $72 billion in public debt.